“The average 401(k) and other defined contribution (DC) plan participant now defers over 8 percent of their annual income toward retirement savings through their plan and social security taxes, making it one of the largest expenses for households. Yet, the retirement readiness of DC participants remains stubbornly low: the typical worker near retirement only has about 2 years of replacement income saved, or about 15 years short of the median lifespan post-retirement. One explanation for the stubbornly low retirement readiness of workers may be an increase in household debt. With more household income going to pay off debt, households may have less money to save and face higher costs of living in retirement. In this paper, we assess the relationship between DC participant’s debt and savings behavior. We find: The monthly debt obligation of active DC households near retirement (between 50 – 65 years old) increased by 69 percent between 1992 and 2010, now adding up to about $.22 of every $1.00 earned. Over 60 percent of households that have a DC plan added more debt to their family balance sheet than they contributed to retirement savings between 2010-2011, a group that we refer to as “debt savers.”

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